America as ‘Kludgeocracy’

It’s not just Illinois that has a problem with lots of confusing, overlapping, expensive governmental structures; the federal government has built a lot of kludges to get across roadblocks and competing ideologies.

By Whet Moser

Published Dec. 11, 2012

Yesterday I went on CNBC to talk with Rick Santelli about the unusually large number of governments (not just cities and counties and townships, but school districts and mosquito abatement districts and whatnot) the state of Illinois has. It’s a lot—more than any other state, including states with bigger populations and more square mileage. I wrote about this awhile ago; the BGA did a report last year; it’s been a political issue for awhile, one that both Kirk Dillard and Pat Quinn have floated.

Normally I wouldn’t bring this sort of thing up; my ability to appear on audio/visual media is predicated on me pretending that those appearances don’t exist in real life. But before I went on, Santelli asked me if the state’s overlapping governments are like, or serve as a metaphor for, big government and expanding bureaucratic oversight at the national level. I didn’t have a good answer for him, so we didn’t talk about it. It’s not exactly a question of “big” government—it’s more about the layers of stuff that build up when you do anything a long time under specific and not always logical rules, or rules that used to be logical but aren’t anymore. (It is a bit like tax policy in that sense.)

But if I’d just made it to my RSS feeds before I went on, I would have come across a new report (via Dylan Matthews) that basically makes that case, “Kludgeocracy: The American Way of Policy” (PDF).

“Kludge” is just nerd-speak for jerry/jury/gerry-rigging/MacGyvering something, and it doesn’t entirely carry negative connotations. It usually means a smartly conceived but subpar and inefficient solution to a less-than-ideal technical situation. Stephen M. Teles, the report’s author, mentions something that should sound familiar:

The price paid by ordinary citizens to comply with programmatic complexity is the most obvious downside of kludgeocracy. One of the often overlooked benefits of Social Security, for example, is that recipients silently have taxes taken out of their paycheck and then, without any effort on their part, checks begin to magically appear upon retirement.

By contrast, 401(k)s, IRAs, 529 plans and the rest of our crazy quilt of savings incentives (for retirement as well as other purposes like higher education) require enormous investments of time, effort and stress. Just for a start, equity mutual funds charge an annual fee of around one percent of assets — compounded until retirement, this reduces savings by around twenty percent. Including items beyond the management fee (like transaction costs and the reduced returns that come from having to hold cash to deal with redemptions), can push that number up considerably.

This is one big reason Medicare and Social Security are third rails: not because they’re free (they’re not), but because they’re so simple. By contrast, I’ve switched health care plans every year or every other year since I became employed, back and forth between the same two companies. It’s not that big a pain—a couple hours a year trying to pluck the numbers out of jargon—but the people who’ve employed me have to employ people to figure it out. Add that up across the country, or even across the number of insurance plans that a typical doctor might accept, and it’s a mess; one of the salient points in T.R. Reid’s The Healing of America is that this is why you, and probably your doctor, have no idea how much procedures actually cost.

Did I mention taxes? I did.

If anything, the transaction costs of the tax code are even more impressive. The American tax code is almost certainly the most complicated in the Western world, both on the individual and the corporate side. The IRS’s taxpayer advocate estimates that the direct and indirect costs of complying with all this complexity costs Americans $163 billion each year. Included in that cost is the remarkable 6.1 billion hours a year that American individuals and businesses spend complying with the filing requirements of the tax code. The web of deductions and credits also pushes up marginal tax rates for everyone: the Bowles-Simpson commission estimated that eliminating all tax deductions other than the EITC and child tax credit would allow marginal rates on middle-income taxpayers to be cut by half, and those on the top earners by about a third, without costing more money. Getting to anything like that level of tax simplicity is exceedingly unlikely, but it does show how much of a cost in higher marginal rates we are paying to preserve our kludgey tax system.

Conservatives over the last few years have increasingly claimed that America is, in Hayek’s terms, on the road to serfdom. This is ridiculous, for it ascribes vastly greater coherence to American government than we have ever achieved. If anything, we have arrived at a form of government with no ideological justification whatsoever.

Teles makes a number of arguments for why our kludgeocracy exists; Matthews challenges the structural ones. One I found compelling was (something of) an ideological justification:

American political culture and ideology have also, in sometimes obscure ways, contributed to kludgeocracy. One of the strongest findings in the study of American public opinion is that Americans are ideological conservatives and operational liberals. That is, they want to believe in the myth of small government while making demands on government to address pressing public problems, including poverty, retirement security, environmental protection and social mobility.

This ambivalence in public opinion creates a durable bias in the actual outputs of American government. The easiest way to satisfy both halves of the American political mind is to create programs that hide the hand of government, whether it is through tax preferences, regulation or litigation, rather than through the more transparent means of direct taxing and spending.

This comes from Suzanne Mettler’s “submerged state” thesis. It’s a kludge in action: keeping the political system functioning by burying the actual actions of government under a confusing web of laws. And the greater the number of laws, the more nooks and crannies for the “kludge industry” to embed itself: “having pulled the fundamental knowledge needed for government out of the state and into the private sector, thus becomes nearly indispensable.” This reminded me of a piece a friend, John Gravois, wrote for Washington Monthly:

In practice, cutting civil servants often means either adding private contractors or—in areas where the government plays a regulatory function—resorting to the belief that industries have a deep capacity to police themselves…. “You can cut and cut and cut and try to streamline the government workforce, but at some point you lose the ability to oversee the money that you’re spending, and that puts everything at greater risk,” says Don Kettl, dean of the University of Maryland’s School of Public Policy. “The opportunities for program failure and waste of public dollars grow exponentially.”

Andy Shaw of the BGA recently wrote that oversight is a critical issue in Illinois’s number of governments: “townships continue to hoard tax dollars and sit on cash cushions that would make King Midas jealous. And the BGA found that when townships do spend our money they typically overpay for everything, including road repairs, snow removal trucks, equipment and personnel.”

It’s not really a case for bigger or smaller government; it’s one for more efficient, more coherent government, that we should get our pitchforks out… and clean the Augean stables.